Brocade Communications in Advanced Talks to Sell Itself

(Bloomberg) -- Brocade Communications Systems Inc. is in advanced talks to sell itself, according to people familiar with the matter.

The network-equipment maker is nearing the final stages of a sale process, said the people, who asked not to be named because the discussions are private. Chipmaker Broadcom Ltd. is one of the interested potential buyers, the people said. No deal has been reached and talks may still fall apart, they said.

An acquisition of Brocade could be announced as soon as this week, said the people. Brocade shares were down about 5 percent this year through Friday, giving it a market valuation of about $3.5 billion. The company has about $1.2 billion in cash and $1.5 billion in debt.

Brocade stock rose as much as 25 percent to $10.88 after being temporarily halted on Monday. Broadcom was little changed. A representative for Broadcom declined to comment. Representatives for Brocade didn’t immediately respond to requests for comment.

Owning Brocade’s networking gear might be attractive for component makers such as Broadcom, which makes the chips that power switches. An acquisition would help a buyer play a greater role in the build-out of data centers needed to meet increasing demand for cloud computing.

Broadcom Chief Executive Officer Hock Tan, who’s built a $67 billion chipmaker through a string of acquisitions, has said he is in the market for more purchases. He already has chips that power network switches and control storage devices, markets that provide Brocade with most of its income.

San Jose, California-based Brocade has struggled to find growth in networking, where it is dwarfed by Cisco Systems Inc. Customers are turning away from proprietary hardware and software combinations that Cisco specializes in, opting instead for open-source software and cheaper hardware built on the kind of chips that Broadcom makes.

Last year, Brocade sales rose 2 percent to $2.3 billion. That’s less than Cisco gets from its switch business in one quarter.